NEW YORK - The Dow Jones Industrial Average dropped 785 points and bond prices surged after an emergency interest-rate cut by the Federal Reserve failed to reassure markets racked by worries that a fast-spreading virus outbreak could lead to a recession.
The yield on the 10-year Treasury note dropped below 1% for the first time. The Dow industrials lost 2.9% to 25,914. It had surged 5% a day earlier on hopes for a broader set of stimulus measures. The S&P 500 index fell 2.8% and is now 11% below the record high it set two weeks ago. The Nasdaq fell 3%.
Stocks had rallied briefly in the morning following the Fed's surprise move, but it took just 15 minutes for the gains to evaporate. While the cut helped raise confidence for some investors - and gave exactly what some had been calling for - Federal Reserve Chairman Jerome Powell acknowledged that the ultimate solution to the health crisis will come from health experts and others, not central banks. Some investors are also questioning whether more aid is on the way to stabilize the market, while others called the Fed's move premature.
Through it all, markets are still faced with the same quandary that has sent stock prices tumbling 11% since they set a record just two weeks ago: No one knows how far the virus will ultimately spread before authorities can get it under control, and by how much companies' profits will be shorn because of it.
After popping to a 1.5% gain shortly after the Fed's announcement, the S&P 500 swung seesawed for about an hour before turning decisively lower in the late morning.
The Fed has a long history of coming to the market's rescue with lower rates and other stimulus, which has helped this bull market in U.S. stocks become the longest in history. Some analysts said the Fed's latest cut should provide some more confidence.
"Confidence in markets is crucial," said Quincy Krosby, chief market strategist at Prudential Financial. "Without confidence, you don't have a market."
The Dow had jumped 5% Monday to its best day in more than a decade on rising anticipation for aid from the Fed and other central banks. Even before Tuesday's rate announcement, traders were convinced that the Fed would cut rates by half a percentage point at its next meeting, scheduled for March 17-18. Monday's surge followed up the worst week for the S&P 500 since the financial crisis.
But doubts are high about whether the medicine provided by central banks can be as effective this time around. Lower rates can encourage shoppers and businesses to borrow and spend more, but they can't reopen factories that have been shut or recall workers out due to quarantines.
Powell acknowledged that central banks can't solve the health crisis. But he said the Fed recognizes the fast spread of the virus is a risk for the economy, and he cited concerns from the travel and hotel industries.
The high stakes pushed the Fed to cut rates outside of a regularly scheduled meeting for the first time since the 2008 financial crisis, when investors were considering a complete meltdown of the world's financial system as possible if not likely. That in itself may have added to the market's dread Tuesday.
"I don't believe that market participants woke up this morning thinking we were facing a crisis similar to the global financial crisis," said Kristina Hooper, chief global market strategist at Invesco. "But that's what the Fed's actions suggested to some."
She said investors will likely have mixed emotions about the move for days.
"The nature of today's announcement could send the wrong signal to market participants, including individual investors who are concerned with recent market volatility," said Roger Aliaga-Diaz, chief economist of the Americas at Vanguard.
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